Understanding the Cost of Goods Sold process

The Cost of Goods Sold (COGS) process takes the value of a sold item and converts from an asset to an expense. This process runs automatically at regularly scheduled times, typically over night or on weekends. You can, however, manually run the COGS process if necessary.

Below is a step-by-step review of the cost of goods sold process.

Starting Inventory

In this example, we have 10 gadgets in inventory (the remaining 90 are still on order) valued at $80. Notice that there are no entries under the Inventory COGS tab at the bottom of the screen.

Inventory Before Order.png

Items Sold

Next, a sales order for 10 gadgets is placed. The order is paid for and we process the shipment.



COGS Expensed

When the COGS process runs, it removes the 10 gadgets from inventory and expenses the them to Cost of Sales. Below is the general journal showing the entries.


Final General Journal Entries

Below is the general ledger log for all entries pertaining to the above example. Notice that the remaining debit balance is your profit of $80 for the sale.



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